Grattan report questions drug prices

Australia is wasting more than a billion dollars a year by paying up to 64 times too much for some prescription drugs, according to a former top federal health bureaucrat.

In a report for the Grattan Institute think tank, Stephen Duckett, a former secretary of the Commonwealth Health Department, compared drug prices paid by the federal government under the Pharmaceutical Benefits Scheme with those paid by New Zealand and by the public hospital systems of two Australian states.

He found that if Australia paid the prices New Zealand pays for 62 identical drugs, it would save $1.1 billion a year. The Commonwealth would save $1.4 million a day if it paid New Zealand prices for the cholesterol-lowering drug atorvastatin, which is marketed by Pfizer under the name Lipitor.

Photo: Jonathan Carroll

The Commonwealth pays an average of 10 times as much as New Zealand for the top 10 drugs by volume. New Zealand's Pharmaceutical Management Agency is an independent expert body which purchases drugs from within a budget set by government.

Advertisement

Professor Duckett said having a fixed budget strengthened the arm of the agency in price negotiations with drug companies.

In contrast, spending on Australia's Pharmaceutical Benefits Scheme - projected to be almost $10 billion this financial year - is uncapped, and a pricing authority containing one-third pharmaceutical industry representation makes pricing recommendations to the health minister.

But the report said New Zealand was not alone in paying lower prices, finding that if the Commonwealth paid the prices Western Australia pays for 39 identical drugs, it would save $750 million a year. The Commonwealth pays 64 times the price Western Australia pays for the anti-psychotic drug olanzapine.

Professor Duckett also called on the Commonwealth to insist on greater discounts when drugs come off patent. While the price the Commonwealth pays for a drug is cut by 16 per cent when the patent expires, many nations demand much greater reductions.

Medicines Australia chief executive Brendan Shaw said the report was a ''guide to how to turn your health system into that of a third world country''.

''Australia is not a developing country. We should be able to afford a good health system,'' he said.

A spokesman for Health Minister Tanya Plibersek said the government had already reduced the price of 1400 drugs, delivering almost $2 billion in savings.

''While the savings identified in the report are significant, there are a range of factors which the government considers when setting medicines policy,'' the spokesman said.

An agreement between the Commonwealth and the medicines industry, preventing the government from making price-related savings to the PBS expires in July 2014.